23rd April 2020 - AUD outperforms as oil rise prompts risk rally

Good morning

OVERTNIGHT DATA AND HEADLINES

A jump in the price of oil and the promise of more government stimulus to ease the economic pain inflicted by the coronavirus pandemic helped calm global equity markets, prompting investors to edge out of perceived safe haven assets like U.S. Treasuries. U.S. crude and Brent both rose more than 6% after touching their lowest levels since 1999 on the prospects for further production cuts to reduce the glut in the oil market. Wall Street surged as oil prices recovered and Congress looked on course to approve nearly $500 billion more in aid to help small businesses ride out the coronavirus crisis. Dow Jones was up 1.99% at 23,475 points, the S&P 500 gained 2.29% to 2,799, Nasdaq added 2.81% to 8,495.38.

Canada's annual inflation rate tumbled to a near five-year low in March as gas prices plunged while analysts said the relevance of future data could be affected because of disruption caused by the coronavirus outbreak. The annual rate plunged to 0.9% from 2.2% in February as the COVID-19 outbreak and an oil supply war hammered the energy sector. Analysts in a Reuters poll had forecast a rate of 1.2% in March. Excluding gasoline prices, the annual inflation rate was 1.7% in March.

Britain's inflation rate dropped in March with a fall in clothing and footwear prices signalling how cautious shoppers were turning. The consumer price index was 1.5% higher compared with March 2019, as a Reuters poll of economists had predicted, slowing from February's 1.7% rise. A fall in clothing and footwear prices was the biggest drag on the index in March, the Office for National Statistics said.

President Donald Trump applauded steps by a handful of Republican-led U.S. states to reopen their economies, but New York's governor, wary of a potential second wave of coronavirus infections, cautioned that it was "no time to act stupidly.” About a half dozen U.S. states, mostly in the South, are loosening stay-at-home guidelines, allowing an array of non-essential businesses to reopen in the hope of reviving their devastated economies. Trump, a Republican seeking re-election on Nov. 3, gave these states a show of support on Twitter. "States are safely coming back. Our Country is starting to OPEN FOR BUSINESS again. Special care is, and always will be, given to our beloved seniors (except me!)," wrote Trump, who is 73. New York Governor Andrew Cuomo, a Democrat who met with Trump on Tuesday, said his state was showing more signs the worst was over including a drop in hospitalizations. But he warned of a potential "second wave" if restrictions are relaxed irresponsibly. "This is no time to act stupidly," Cuomo added. "More people are going to die if we are not smart.” "We make a bad move, it's going to set us back,".

CURRENCIES

The USD edged lower, erasing some of the previous day's gains after hitting a 2 week high of 100.48. The DXY index was 0.13% lower at 100.33 into the close.

CNY edged off its lows in over two-weeks, the midpoint rate set at 7.0903, 151 pips or 0.2% weaker than the previous fix of 7.0752, the weakest since April 7.

EUR dipped from around 1.0880 to hit new lows of 1.0804.

AUD fell from 0.6354 highs to a 0.6303 low however a late rebound saw it back up around 0.6325.

NZD fell to 0.5940 lows but ended up slightly stronger into the NY close.

USDJPY made 107.94 highs.

AUDNZD made impressive gains in the last 24 hours, rising towards fresh new highs around 1.0622.

AUDEUR rebounded to touch a 0.5845 high.

TREASURIES

A market shift back into equities drove up U.S. Treasury yields, remaining at relatively low levels as skepticism about efforts to restart the U.S. economy limited gains.

The benchmark 10-year yield was up 4.8 basis points at 0.619% in afternoon trading.

The two-year U.S. Treasury yield was up less than a basis point at 0.2112% in afternoon trading.

The gap between yields on two- and 10-year Treasury notes was at 41 basis points, about 4 basis points higher than at Tuesday's close.

Gold prices jumped as much as 1.9% on expectations for more fiscal and monetary stimulus measures. Spot gold was up 1.6% at $1,711.84 per ounce, its biggest daily gain in nearly two weeks.

Iron ore futures in China recovered all losses from the previous session to close higher, fuelled by hopes that demand from steelmakers will increase in the coming months. Spot prices of iron ore with 62% iron content for delivery to China fell by $2 to $85 per tonne.

Copper prices firmed as major miners warned the coronavirus crisis would cut output and financial markets stabilised after two days of chaos caused by oil price falls. Benchmark LME copper was up 1.9% at $5,124.50 a tonne.

Brent crude oil rebounded from two days of losses and U.S. futures surged, boosted by tentative talk of additional supply cuts from OPEC producers and U.S. inventory builds that were less dire than some expected. Brent rose $1.04, or 5.4%, to settle at $20.37 a barrel. Earlier in the session, the global benchmark fell to $15.98, its lowest level since June 1999. U.S. West Texas Intermediate (WTI) crude futures for June delivery gained $2.21, or 19.1%, to settle at $13.78 a barrel.

US - April manufacturing PMI, services PMI. A market deterioration expected across both manufacturing and services PMIs.

US - March new home sales (last -4.4%, forecast -15.0%).

AUD THOUGHTS AND TECHNICAL ANALYSIS

AUD held onto recent gains, falling from 0.6350 highs down towards 0.6303 as a stronger commodity complex gained with oil markets leading the charge overnight. Oil rose more than 5%, copper 1.1% and equities about 2.0% however AUD gained only about 0.60%.

Yesterday, Australian retail sales surged by the most on record in March as a lockdown for the coronavirus spurred panic buying of food and other staples, perhaps saving the entire economy from a damaging contraction in the first quarter. Sales will likely plunge back in April due to strict social distancing rules and the closure of many businesses, but the boost to the first quarter was still timely. The Australian Bureau of Statistics on Wednesday reported its preliminary estimate of retail sales jumped 8.2% seasonally adjusted in March, from February. That beat the previous record rise of 8.1% from 2002 when consumers brought forward purchases ahead of a goods and services tax. The increase was far larger than any economist had forecast and lifted sales to an all-time high of A$30 billion ($18.86 billion). Sales were up a hefty A$2.28 billion on February, implying an addition to gross domestic product (GDP) of around 0.5 percentage points. The rise in supermarket sales reached a peak in mid-March before levelling off at the end of the month, the ABS said. Another gainer was electrical and hardware as consumers rushed to buy the equipment for home offices. Not so fortunate were cafes and restaurants as most were shut as part of the pandemic fight, while clothing and department stores were badly hit by social distancing rules.

Local Economic data today will see the release of The Australian Q1 business survey with confidence expected to fall away. Overnight, European and U.S. PMI releases will be closely watched as well as the US jobless claims which is expected to continue printing record job losses in the face of the shutdowns.

For the AUD, opens this morning at 0.6320. AUD needs a more significant improvement in risk appetite for its rally off of last month's lows to flourish even though rising equity and commodity prices provide a modest lift.

It rallied above the 10-DMA and near the 55-DMA but sellers remain as emerging market currencies remained weak.

If the current risk-on sentiment deteriorates AUD may test the key 0.6195/0.6215 support zone where the 21-DMA, 50% Fibo of 0.5980-0.6445 and April 9 daily low sit.